KANSAS CITY — Working collaboratively is more important than ever along the food supply chain, said industry executives at a recent conference. At the BMO Capital Markets Farm to Market Conference held May 19 in New York, representatives from Cargill, General Mills, Inc. and Kroger Co. were asked how their relationships with one another have changed over the last several years and what factors drove the change.
Marcel Smits, chief financial officer of Cargill, Minneapolis, said he sees “massive change,” with more people than ever interested in what is transpiring from farm to fork.
“At Cargill we actually have visibility on what goes on at the farm,” Mr. Smits said. “So we have visibility all the way back to the origin of the supply chain. And that means that we’re doing very different things with customers than we used to do a couple of years ago.”
As an example of the change, he mentioned a collaborative effort with Minneapolis-based General Mills.
“Rather than looking at different elements of the supply chain, what we control and they control, we work together and collaborate and try to come up with solutions that cut across the supply chain,” he said.
Mr. Smits also said Cargill prides itself on being one of the contributors to the growth of the deli segment of fellow panel member Kroger.
“Last year when avian influenza hit we actually helped them (Kroger) to find new sources of turkey,” he said. “So the fact that consumers are asking lots of questions as to what’s going on in food and the origin where does it come from and how is it made and is it healthy leads industrial and food service and retailers to come to us and say we need to provide those reassurances to customers and consumers, provide us help with how we can do that.”
Consumers come first
Building on Mr. Smits’ comments, Donal Mulligan, executive vice-president and chief financial officer of General Mills, said it all starts with the consumer.
“I think a great deal of what is driving the increased partnership across the food chain is the evolving needs and the rapidly evolving needs and preferences of the consumers,” Mr. Mulligan said. “So whether it is with Cargill to create technical solutions to challenges we face such as how do we reduce sugar, how do we increase the whole grains in our products to co-creating with our retail partners in terms of what products, what merchandising programs are going to be most relevant and resonant with the changing consumer needs, that linkage in each point of the supply chain is important from a transparency standpoint and it’s important from a speed-to-market standpoint.”
He said he couldn’t recall a time when consumers’ preferences and needs were changing as fast as they are today. Those needs range from understanding where food comes from to what ingredients are in the food.
“It’s important for us as a manufacturer in a consumer-driven company to respond to those,” Mr. Mulligan said. “We can’t do it alone. So partnering with Cargill and other suppliers in terms of understanding where the product comes from, reformulating products to meet those needs and then with strong partners like Kroger in terms of how do we actually get those in front of consumers in a way that works for both the retailer and for the manufacturer and obviously for the endgame for the consumer.”
Understanding the origin
For Kroger, much of the groundwork has been laid by such companies as Cargill and General Mills. But there are still challenges, said Mike Schlotman, executive vice-president and c.f.o. at Kroger, Cincinnati.
“Our difficulty comes from having 50,000 or 60,000 items in the store from a variety of suppliers and the customer wanting our associates to be able to tell them those answers,” he said. “The interesting thing is while there is a huge trend toward this, there’s a lot of customers that frankly don’t care or ask. And we haven’t seen the ability or desire of the consumer to go one way or the other, which adds a level of (complexity) at retail but makes it no less important for our associates to understand the origin of the product and how the product is done.”
As an example of its collaborative effort in the supply chain, Mr. Schlotman mentioned Kroger’s 10-year partnership with Murray’s Cheese, a business based in Greenwich Village, N.Y. with roots dating back to 1940. Kroger has more than 200 Murray’s Cheese shops inside of its grocery stores, and the retailer requires its associates to work for a two- or three-week training session to learn about how and where the cheese is made. The associates visit the caves and spend time with the Murray’s Cheese executive team.
Upon passing the “cheesemonger test,” the associates receive a red vest or a red smock to wear back in the store that signifies they’ve gone through the training class and have passed it. This becomes a symbol of pride for them, Mr. Schlotman said.
“A lot of these folks haven’t even traveled before,” he said. “But it also becomes a source of solid information for our associates to know that that person has been trained to that level to discuss the product they are buying.”
In addition to transparency, a number of other changes are evident across the supply chain, the panelists said.
Mr. Schlotman of Kroger said the concept of eating healthier and understanding what is being consumed will remain a long-term trend.
“It cuts across age groups,” he said. “It’s not — people want to attribute it to the millennials only, but it cuts across all age groups. I’ll be 59 this year, so I’m not a millennial anymore … but folks my age, as you start to age and different health issues creep up, people my age are thinking about the quantity and quality of food they eat and the amount of exercise you get and relationship with that as well.
“And with the explosion of diabetes in the country and other disease states like that that can be fixed by eating and exercising differently, I think it’s incumbent on those of us in the food supply chain to try to be a big player and be out in front of that.”
Mr. Mulligan of General Mills agreed with Mr. Schlotman’s view on health and wellness. In the case of General Mills, Mr. Mulligan said the company is working with its suppliers not to find a specific ingredient, but rather to find a solution. For example, he said the company is looking for ways to formulate sugar so that the product has the sweetness consumers want but with fewer grams of sugar per serving.
“That’s something that we aren’t doing alone,” Mr. Mulligan said. “We have some terrific food scientists, but we know that there’s, well, we may have 1,000 great food scientists, there’s 2 million food scientists around the world working on technological advancements and we want to tap into those. And the way you deliver health and wellness without compromising on taste, the only way it works is if you’re continuing to renovate your products and leveraging everyone’s expertise in the food chain to make that happen.”
Another area of complexity and change in industry is technology, said Mr. Smits of Cargill.
“As a result of technological changes in social media the barriers to entry for branding have come down significantly, which is why in industry after industry you see small, specialized, niche propositions coming up,” Mr. Smits said. “The yogurt industry, for example, is a really nice example. We see customers asking for a G.M.O. variant and a non-G.M.O. variant. And that fundamentally changes the dynamic in our industry because it decommoditizes our part of the industry. So if people ask for a G.M.O. variant and a non-G.M.O. variant, initially we stand back and say that’s going to be complicated because that means we’re going to have to keep our grains separate in separate bins. If we stand back a little further we say, well, that’s actually interesting because it’s going to decommoditize our business.”